UPS LEADS TRANSPORTS LOWER -- FINANCIALS WEAKEN -- ENERGY CONTINUES TO BOUNCE -- INTEL LEADS CHIPS HIGHER -- MARKET HAS RELIEF RALLY

UPS TUMBLES 7% -- TRANSPORTS ON SELL SIGNAL ... UPS tumbled over 6 points today on monster volume. The weekly bars in Chart 1 show the technical damage that's been done to this transportation stock. It's weekly RSI and MACD lines are on the first sell signals in a year. The stock is bearing down on its 40-week (200-day) moving average at 76 as well as potential chart support along its last year's highs at 75. Given today's terrible combination of price and volume action, it's doubtful those support levels will hold for long. UPS was the worst performer in the Dow Transports which have also turned down. The weekly bars in Chart 2 show the transportation index trading under its 10-week average for the first time in five months. Its weekly MACD lines are also giving the first sell signal since January of last year (see red arrows). The 14-week RSI line is falling from overbought territory over 70. Add the transports to the list of 2004 leaders that appear to have peaked.

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FINANCIALS HAVE TURNED DOWN ... Banks and brokerage stocks have turned down. Chart 3 shows the Bank Index having broken its 50-day average and threatening its December low. Chart 4 shows the Broker/Dealer Index having just broken its 50-day line. Its relative strength line, which had been rising since October, is also rolling over to the downside. That means that the market is losing its brokerage leadership. [The relative strength line is a ratio of the XBD divided by the S&P 500 and is the black line plotted beneath the price chart. The blue line is a 20-day exponentially smoothed moving average of the RS line. It's a bad sign when the RS line falls beneath a falling 20-day EMA line].

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GENZYME LEADS BIOTECH BOUNCE ... Biotech stocks recovered from yesterday's selling. That kept the Biotech Index over its 50-day moving average. The biotech star of the day was Genzyme which reached a new 52-week high on rising volume. Genentech (DNA) continues to lose ground. The biotech laggard has fallen below initial support near 51 and is trading beneath both moving average lines. Clearly, that's not the right biotech stock to be in. Genzyme is.

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ENERGY STOCKS HAVE STRONG DAY ... A big drop in the dollar today (and a drop in oil inventories) boosted crude oil .74 cents to 46.42. That helped make energy stocks one of today's leading groups. I wrote about the improving chart action in this group yesterday. It improved even more today. Chart 8 shows the Oil Service Holders (OIH) closing at a new high for the month on rising volume. Its relative strength line appears close to an upside breakout. Two leading oil service stocks have already achieved that. Noble Drilling is within a point of a new high. Its RS line has already turned up, which makes it a leader in the group. Rowan Companies is challenging a falling trendline extending back to early October. Its rising RS line also marks RDC as an oil service leader.

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INTEL PULLS CHIPS HIGHER ... Intel reported strong earnings after the close last night and bounced nicely today as a result. The stock gained on rising volume. So for, however, that hasn't changed its chart picture one way or the other. To do that, it needs first to close back over its 50-day average and then its intra-day December high at 23.81. And, most of all, Intel needs to close back over its 200-day average. Its point & figure chart shows that Intel never gave an actual sell signal. To give a new buy signal, it would have to reach 23.95. We'll be watching. Intel gave a boost to the semiconductor group today. Chart 13 shows today's bounce in the Semiconductor Holders (SMH). The fact that volume also rose is encouraging -- as is the fact that the group is oversold (see CCI oscillator). Yesterday I showed all the short-term sell signals that took place in this group since the start of January. The SMH is going to have to do a lot more on the upside to reverse that negative trend. Today's chip rally did help inspire a relief rally in the Nasdaq and the market as a whole.

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NASDAQ 100 AND S&P SPDRS BOUNCE ... Today's relief rally can be seen on the daily charts of the Nasdaq 100 Shares (QQQQ) and the S&P 500 SPDRS. Both closed higher on rising volume. That isn't surprising considering that both are in a short-term oversold condition. Charts 14 and 15 also show both ETFs bouncing off their lower Bollinger Bands. To turn their short-term trends higher, they would need to close over their (dashed) 20-day averages (39.25 in the QQQQ and 120 in the SPY). The SPY is also bouncing off chart support along its late-November low near 117. Both MACD lines remain in negative territory. We'll be watching the action over the next couple of days to see if today's bounce has any staying power.

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